KUALA LUMPUR — Economy Minister Rafizi Ramli said the government is expecting public backlash as it moves ahead with rationalising subsidies for RON95 petrol mid-next year.
He told Bloomberg in a television interview that although politically sensitive, reforming subsidies is crucial to convincing investors that Malaysia is serious about fiscal reform.
Rafizi said inflationary pressure is the government’s biggest concern even though 85% of the population is still expected to pay subsidised prices for the fuel. Putrajaya is aiming to remove the current blanket subsidy from the ultra rich – under a new ’T15’ income category it has yet to define – and foreigners.
“It is the nature of the Malaysian economy that, at any sign of a fuel price hike, you will start seeing everything else go up,” the minister told Bloomberg Television’s “Insight with Haslinda Amin” on Saturday, a day after Budget 2025 was tabled in Parliament.
Prime Minister Datuk Seri Anwar Ibrahim, who is also finance minister, announced the mid-2025 target date for blanket subsidy removal for RON95 when tabling the budget.
Rafizi said the government had simulated price hikes resulting from the subsidy roll-back, projected a “12-month cycle” of price hikes “before inflation basically stabilises again to around 2%”.
Putrajaya has projected inflation to average at between 2% to 3.5% next year. For 2024, inflation is expected to be within 1.5% to 2.5%.
Rafizi said a two-tier pricing system for RON95 will be introduced, which he hopes can keep inflation in check, with the 3.5% inflation projection a “worst-case scenario”.
Under the two-tier pricing system for the fuel, the top 15% income earners will pay market rate for RON95, while the rest, or 85% of the population will still enjoy subsidies.
As another option, Rafizi mentioned floating RON95 prices and providing cash handouts to the needy, but admitted that this method may not reach all those eligible for aid.
The rationalisation is expected to save Putrajaya RM8 billion ringgit a year.
Rafizi described the future when the subsidy roll-back is enforced as “choppy waters” but also called it a “once-in-a-generation decision that affects everyone’s lives”. – October 21, 2024